Chinese electric vehicle manufacturer BYD is moving closer to launching local production in Indonesia as construction of its EV assembly plant in Subang, West Java, progresses toward operational readiness. The facility is designed with an annual production capacity of approximately 150,000 vehicles and is currently entering the final preparation stage ahead of full-scale production.

According to reports, the plant has begun trial production and manufacturing line verification as the company prepares for commercial operations. The project represents one of the largest EV manufacturing investments in Indonesia and reflects the country’s efforts to attract electric vehicle production.

Indonesia has been actively positioning itself as a regional EV manufacturing hub. The government has introduced incentives to encourage EV investment while promoting local production to build a domestic EV supply chain.

The investment also highlights the growing interest of Chinese EV manufacturers in Southeast Asia as a production base, both to serve local markets and potentially support regional exports.

Source: The Jakarta Post

PSR Analysis: One notable aspect of BYD’s investment is that Chinese EV manufacturers are beginning to reshape the geography of automotive production in Southeast Asia. For decades the region’s automotive industry developed around Japanese manufacturers, with Thailand serving as the main export base while Indonesia functioned primarily as a large domestic market.

In the EV era the dynamics are somewhat different. During the internal combustion engine period, engine technology and deeply localized supplier networks created significant barriers to entry. EVs shift the competitive focus toward batteries, electric motors, and power electronics, allowing companies with strong upstream supply chains to establish manufacturing operations in new markets more quickly.

At the same time, discussions in Europe and North America have recently pointed to a slowdown in EV demand growth. Southeast Asia may follow a different trajectory. Vehicle ownership levels remain relatively low and government EV policies are only beginning to take effect, meaning the regional EV market is still in an early expansion phase. PSR

Akihiro Komuro is Research Analyst, Far East and Southeast Asia, for Power Systems Research

The evolving automotive relationship between India and Indonesia is increasingly defined by structured, government-linked procurement and industrial collaboration rather than routine export activity. Recent transactions involving Tata Motors, Mahindra & Mahindra, and Ashok Leyland signal a measurable expansion of India’s commercial vehicle footprint in Southeast Asia’s largest economy.

Indonesia’s infrastructure expansion, rural logistics formalization, and cooperative-based distribution programs have generated concentrated demand for light and medium commercial vehicles. Unlike fragmented retail-driven sales, these programs are characterized by bulk institutional procurement, creating predictable order pipelines and scale efficiencies for suppliers. Indian manufacturers, with established competencies in cost-optimized, durable vehicle platforms suited to emerging market operating conditions, have been able to secure sizeable allocations.

Tata Motors’ agreement to supply 70,000 commercial vehicles to Indonesia represents one of the largest single-country export orders for the company’s commercial vehicle division. The order mix—comprising pick-ups and intermediate trucks—aligns with rural aggregation, first-mile logistics, and small-enterprise mobility requirements. For Tata Motors, the transaction improves export volume visibility and supports capacity utilization at a time when domestic demand remains cyclical. It also strengthens the company’s ASEAN exposure, a region historically dominated by Japanese OEMs with entrenched distribution ecosystems.

Mahindra & Mahindra’s confirmed export of 35,000 Scorpio Pik-Up units further reinforces India’s competitive positioning in light commercial vehicles. The scale of the order is significant in the context of Mahindra’s annual export volumes and reflects Indonesia’s preference for mechanically robust, serviceable platforms. For Mahindra, the contract provides near-term revenue assurance and export diversification beyond traditional African and South Asian markets. It also underscores the commercial viability of leveraging existing platforms for overseas institutional demand without substantial incremental R&D expenditure.

Beyond direct vehicle supply, the engagement is extending into industrial collaboration. Ashok Leyland’s memorandum of understanding with Indonesia’s state-owned defense manufacturer PT Pindad reflects a more structural shift. The partnership focuses on joint development of electric buses and specialized defense mobility platforms, potentially involving localization and technology transfer components. If executed at scale, such arrangements could transition the bilateral relationship from pure trade flows to co-manufacturing and value-added integration.

From a financial standpoint, these developments improve export-to-domestic revenue ratios for Indian OEMs, reducing concentration risk. Institutional orders also enhance working capital planning due to defined delivery schedules and clearer payment frameworks compared to retail markets. However, margin profiles will depend on localization levels, logistics costs, and currency exposure. Sustained competitiveness will require efficient after-sales networks and parts distribution within Indonesia to protect lifecycle economics.

The broader competitive landscape remains challenging. Japanese manufacturers continue to dominate Indonesia’s passenger and commercial vehicle segments, supported by long-standing production bases and supply chain integration. Chinese OEMs are also expanding aggressively, particularly in electric mobility. Indian manufacturers must therefore balance price competitiveness with compliance, service infrastructure development, and potential local assembly commitments to maintain order continuity.

For Indonesia, diversification of vehicle sourcing reduces supplier concentration risk and introduces cost-efficient alternatives into public and cooperative programs. For India, Indonesia offers scale in a geographically strategic ASEAN market with expanding logistics formalization and electrification ambitions.

Source:  The Hindu   Read The Article  

Overall, the recent wave of transactions suggests that India–Indonesia automotive ties are moving toward structured, program-linked engagement with increasing industrial depth. The sustainability of this trajectory will depend on execution discipline, localization strategies, and the ability of Indian OEMs to convert initial bulk orders into recurring institutional relationships.  PSR

Aditya Kondejkar is Research Analyst – South Asia Operations for Power Systems Research

The Indonesian Heavy Equipment Distributors Association (PAABI) forecasts an expansion in construction machinery demand in 2026, with a potential total of 23,000 to 25,000 units. This represents an estimated growth of 5% to 8% compared to 2025, with a projected total market size of around US$3.62 billion.

According to the PAABI Chairman, the increase in demand in 2026 will be driven by the nation’s Strategic Infrastructure Projects (PSN), the ongoing construction of the new capital, IKN, and mining activities at major nickel and coal sites. These projects are expected to increase demand for heavy machinery, such as hydraulic excavators, wheel loaders, and bulldozers.

PAABI also noted that the mining sector is expected to contribute significantly to these demand forecasts, accounting for about 45% to 50% of the total. The construction and infrastructure sector is expected to follow, accounting for about 35% to 40%. Other industries, such as plantations and forestry, are expected to account for a smaller share.

PAABI notes that factors supporting medium- to long-term growth rates include nationwide infrastructure development, demand for disaster recovery and reconstruction, expansion of mining-related resource development, and anticipated adoption of next-generation technologies, such as telematics and electric/hybrid heavy machinery. These factors could drive a shift in demand toward high-value machinery and services, such as after-sales service and leasing.

Against this backdrop, PAABI projects that “the construction machinery market will remain robust in 2026, with annual demand potentially reaching 23,000 to 25,000 units.” However, PAABI also warns that risks persist, including competition across the entire value chain, technology adoption costs, and uncertainties in mining production plans.

Source: Indonesian Mining Association

PSR Analysis: The figure of 25,000 units is overly optimistic and does not reflect actual demand. Taking it at face value is dangerous. However, it is not so far-fetched as to be dismissed as completely unrealistic.

In Southeast Asia, including Indonesia, it is common practice for governments, industry associations, and major dealers to announce targets based on expectations. In messages intended to stimulate the economy for national projects, such as the IKN new capital and mining/energy projects, figures based on maximum cases or ideal progress are often used. Actual results often converge to around 60-80% of the announced targets.

From the perspective of actual demand, recent Indonesian construction equipment sales have realistically ranged from 15,000 to 20,000 units per year. Even during boom years when high resource prices and public investment coincided, sales rarely exceeded 25,000 units. Therefore, 25,000 units can be considered “close to a historical peak.”

So, why did this figure emerge? It’s based on the assumption that multiple drivers will materialize simultaneously. Specifically, it’s a scenario in which the following occurs without a hitch: the full-scale launch of construction related to IKN (New Capital), the re-acceleration of mining investments in nickel, copper, etc., the recovery of public investment after the elections, and the demand to replace aging equipment. This can be described as a conditional figure. “Strong if it happens, but it will fall short if even one factor is delayed.”

A more realistic assessment would be:

• Conservative scenario: 18,000–20,000 units
• Base case: 20,000–22,000 units
• Bullish scenario (reported 25,000 units): If all conditions align.

This seems like a reasonable assessment. That said, there is no doubt that the demand for construction machinery in Indonesia is strong. It is expected to continue growing, but the actual number of units will depend significantly on whether all the drivers align. PSR

Akihiro Komuro is Research Analyst, Far East and Southeast Asia, at Power Systems Research

The program will accelerate the mechanization and modernization of rural agriculture by enabling farmers to use machinery, thereby reducing working hours, cutting costs and increasing yields.

However, the need to establish systems for machine maintenance, repairs and parts procurement has also been highlighted, making the subsequent operation and maintenance of machinery crucial as well as its initial introduction. Consequently, the Indonesian agricultural machinery market is entering a phase where opportunities for entry and expansion are increasing for agricultural machinery manufacturers, parts suppliers, and service companies from the perspectives of ‘boosting demand + regional expansion + maintenance/rental services’.

Source: BPS-Statistics Indonesia

PSR Analysis: Although no specific figures have been disclosed regarding the scale of distribution, past statements from the Ministry of Agriculture suggest that the 2025 ALSINTAN (Agricultural Tools and Machinery) agricultural machinery subsidy budget is being prepared at around Rp10 trillion (approximately USD 700–800 million).

Furthermore, reports have mentioned plans to ‘deploy 5,399 ALSINTAN units ahead of the harvest season’. This suggests a large-scale initiative involving several thousand to ten thousand units. This free distribution is a significant catalyst for advancing mechanization and demonstrates the country’s commitment to agriculture. PSR

Akihiro Komuro is Research Analyst, Far East and Southeast Asia , for Power Systems Research

In October 2025, LiuGong Indonesia, the Indonesian subsidiary of the Chinese construction machinery manufacturer LiuGong, signed a memorandum of understanding regarding its investment plan for an industrial zone. The new factory in Karawang, which is expected to begin operations in 2026, will have an annual production capacity of 5,000 units and will require a total investment of $317 million. The factory will incorporate AGVs, MES and a dedicated R&D center for electric construction machinery, advancing the adoption of advanced technologies.

Through partnerships with local suppliers, the company aims to increase its TKDN (local content requirement) and achieve certification within five years. Products will be exported to the domestic market, as well as to Southeast Asia, Australia and North America, with an expected annual foreign exchange earnings effect of $40 million. LiuGong views this investment as a contribution to strengthening Indonesia’s heavy equipment industry ecosystem and supporting sustainable development.

Source: LiuGong

PSR Analysis: This is a multi-purpose investment, primarily aimed at capturing domestic demand in Indonesia while also targeting the development of export hubs in Southeast Asia, Australia and North America, and TKDN compliance.

TKDN stands for Tingkat Komponen Dalam Negeri, which translates to Domestic Component Level in English. It is an Indonesian government policy and regulatory framework that measures the percentage of local (Indonesian) content used in goods or services.​

TKDN represents the proportion of domestic materials, labor, and services used in production relative to the total production cost. Its primary goal is to strengthen local industries, reduce dependence on imports, and ensure that more economic value is generated within Indonesia.​

In particular, TKDN compliance could become a priority condition for government procurement, suggesting an intent to increase the likelihood of selection for domestic public works projects. Given the expectation of continued stable growth in Indonesia’s construction machinery market, the environment is conducive to improving the economic viability of local production. These developments are also likely to increase the presence of Chinese manufacturers in Indonesia and other Southeast Asian countries. PSR

Akihiro Komuro is Research Analyst, Far East and Southeast Asia, for Power Systems Research

Iseki will produce 90% of its products for overseas markets, mainly Europe and the United States, in Indonesia by 2030. The company will gradually transfer the production of tractors and other products for overseas markets that have been handled domestically and will use the consolidation of production as an opportunity to review product design.

In Japan, the market for agricultural machinery is shrinking, and it is difficult to secure human resources. The company will strengthen the position of its production base in Indonesia to expand its overseas business, particularly in Europe and the United States.

The production capacity of the local plant increased to 22,000 units in 2023, a 20% increase over the previous capacity. At present, the production transfer is about 60% complete.

As Indian companies competing overseas are increasing their offensive with products that are 10-20% cheaper, the company is also reviewing the design of its products. The company will reduce development costs by designing tractor transmissions and other components to be common worldwide. The company will increase price competitiveness by using inexpensive parts from India’s TAFE, with which it has a technical tie-up.

Source: The Nikkei

PSR Analysis:  The shrinking of Japan’s domestic agricultural machinery market and the growth potential of Indonesia’s agricultural machinery market are clearly illustrated by this move. According to the Ministry of Agriculture, Forestry and Fisheries (MAFF), the number of farmers in Japan has been reduced by 50% over the past 20 years to approximately 1.16 million. According to the Japan Agricultural Machinery Manufacturers Association (JAMMA), domestic shipments of agricultural machinery are down 30% from 10 years ago. Under these circumstances, it is difficult to expect sales of agricultural machinery to grow.

Meanwhile, in Indonesia, the Ministry of Investment has launched an inspection program for Japanese companies to provide them with investment opportunities in the agricultural machinery industry. The quality of Japanese agricultural machinery and its approach to agriculture itself are highly regarded in Indonesia. In particular, ISEKI and other Japanese brands of rice paddy tractors are popular. The specifications of paddy tractors required by rice farmers are different from those of field tractors in Europe and the United States, such as waterproof performance and a small turning radius for easy maneuverability. Indonesia is the world’s third largest rice producer and exports large quantities of rice to the United States and China.

Although farmers’ incomes remain low and the number of farmers is declining, the Indonesian agricultural machinery market will grow in the long term as more efficient farming is a must to produce a stable food supply for the country’s 270 million people (fourth in the world).

Also noteworthy are developments like those in the automotive industry, such as the use of third-party parts and the sharing of transmissions. The Southeast Asian market is a price-performance market, and no matter how high the performance, if the product is expensive, it will not sell. There will also be a growing movement to create more cost-appealing products. PSR

Akihiro Komuro is Research Analyst, Far East and Southeast Asia, for Power Systems Research

Indonesia is trying to reduce Chinese investment in new nickel mining and smelting operations in order to qualify for U.S. tax incentives. Under the Biden administration’s Inflation-Reduction Act (IRA), large tax incentives will apply after 2025. However, it does not apply to batteries sourced from “foreign entities of concern,” such as companies in which Chinese capital holds more than 25% of the shares, or to EVs that use nickel or other key minerals. Indonesia’s nickel industry will be hit hard by these conditions. This is because the country has been the world’s largest producer of nickel for the past four years, thanks to a large influx of Chinese capital into its mining and smelting operations.

According to three people familiar with the matter, the Indonesian government and the nickel industry are working on new investment projects in which Chinese companies will have a smaller stake. It is possible that the nickel supplied through these deals will be eligible for tax benefits under the IRA. However, in order for the Indonesian nickel industry to receive tax benefits, it will also need to negotiate a trade agreement with the United States. The Indonesian side is proposing an agreement limited to critical minerals.

According to a person familiar with the Indonesian government’s position, it is in talks with several investors to build a smelter in which Chinese companies would have less than a 25% stake.

Source: Financial Times Japanese Edition

PSR Analysis:  This is not to say that Indonesia is pro-China or anti-China. They are in a state of strategic exploration from the perspective of how to gain greater national benefits. Chinese capital has already been invested in a large mine in Indonesia, which is effectively under Chinese control.

Although Japan and the U.S. are researching batteries that do not depend on nickel, they are still at the experimental level, and nickel will continue to be needed for the foreseeable future. This means that batteries for EVs will be difficult to obtain unless China has a stable supply of nickel. Excessive dependence on China is one of the reasons for some EV opponents, and competition to secure EV batteries is intensifying at the national level. PSR

Akihiro Komuro is Research Analyst, Far East and Southeast Asia, for Power Systems Research